Page 14 of 14
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission file number 33-11576
Southwest Royalties Institutional Income Fund VII-B, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2165825
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
407 N. Big Spring, Suite 300
_________Midland, Texas 79701_________
(Address of principal executive offices)
________(915) 686-9927________
(Registrant's telephone number,
including area code)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes __X__ No _____
The total number of pages contained in this report is 14.
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed financial statements included herein have been
prepared by the Registrant (herein also referred to as the "Partnership")
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments necessary for a fair presentation have been included and are of
a normal recurring nature. The financial statements should be read in
conjunction with the audited financial statements and the note thereto for
the year ended December 31, 1996 which are found in the Registrant's Form
10-K Report for 1996 filed with the Securities and Exchange Commission.
The December 31, 1996 balance sheet included herein has been taken from the
Registrant's 1996 Form 10-K Report. Operating results for the three and
nine month periods ended September 30, 1997 are not necessarily indicative
of the results that may be expected for the full year.
<PAGE>
Southwest Royalties Institutional Income Fund VII-B, L.P.
Balance Sheets
September 30, December 31,
1997 1996
----------- ---------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 25,868 10,379
Receivable from Managing General Partner 84,537 126,601
- --------- ---------
Total current assets 110,405 136,980
--------- ---------
Oil and gas properties - using the
full cost method of accounting 4,353,685 4,353,685
Less accumulated depreciation,
depletion and amortization 2,939,370 2,838,370
--------- ---------
Net oil and gas properties 1,414,315 1,515,315
--------- ---------
$1,524,720 1,652,295
========= =========
Liabilities and Partners' Equity
Current liability - Distribution payable $ 1,085 621
--------- ---------
Partners' equity
General partners (492,406) (479,602)
Limited partners 2,016,041 2,131,276
--------- ---------
Total partners' equity 1,523,635 1,651,674
--------- ---------
$1,524,720 1,652,295
========= =========
<PAGE>
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues
Income from net profits
interests $ 142,058 143,851 486,137 440,457
Interest 362 419 1,110 1,157
------- ------- ------- -------
142,420 144,270 487,247 441,614
------- ------- ------- -------
Expenses
General and administrative 27,918 27,333 92,286 91,367
Depreciation, depletion and
amortization 31,000 42,000 101,000 123,000
------- ------- ------- -------
58,918 69,333 193,286 214,367
------- ------- ------- -------
Net income $ 83,502 74,937 293,961 227,247
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 7,515 6,744 26,456 20,452
======= ======= ======= =======
General Partner $ 835 749 2,940 2,272
======= ======= ======= =======
Limited Partners $ 75,152 67,444 264,565 204,523
======= ======= ======= =======
Per limited partner unit $ 5.01 4.50 17.64 13.63
======= ======= ======= =======
<PAGE>
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities
Cash received from income from net
profits interests $ 528,201 456,823
Cash paid to suppliers (92,286) (91,367)
Interest received 1,110 1,157
------- -------
Net cash provided by operating activities 437,025 366,613
------- -------
Cash flows used in financing activities
Distributions to partners (421,536) (371,553)
------- -------
Net increase (decrease) in cash and cash
equivalents 15,489 (4,940)
Beginning of period 10,379 28,684
------- -------
End of period $ 25,868 23,744
======= =======
(continued)
<PAGE>
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Cash Flows, continued
(unaudited)
Nine Months Ended
September 30,
1997 1996
Reconciliation of net income to net cash
provided by operating activities
Net income $ 293,961 227,247
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, depletion and amortization 101,000 123,000
Decrease in receivables 42,064 16,366
------- -------
Net cash provided by operating activities $ 437,025 366,613
======= =======
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Royalties Institutional Income Fund VII-B, L.P. was organized as
a Delaware limited partnership on January 28, 1987. The offering of such
limited partnership interests began March 23, 1987; minimum capital
requirements were met May 20, 1987 and concluded December 1, 1987, with
total limited partner contributions of $7,500,000.
The Partnership was formed to acquire royalty and net profits interests in
producing oil and gas properties, to produce and market crude oil and
natural gas produced from such properties, and to distribute the net
proceeds from operations to the limited and general partners. Net revenues
from producing oil and gas properties will not be reinvested in other
revenue producing assets except to the extent that production facilities
and wells are improved or reworked or where methods are employed to improve
or enable more efficient recovery of oil and gas reserves.
Increases or decreases in Partnership revenues and, therefore,
distributions to partners will depend primarily on changes in the prices
received for production, changes in volumes of production sold, lease
operating expenses, enhanced recovery projects, offset drilling activities
pursuant to farmout arrangements, sale of properties, and the depletion of
wells. Since wells deplete over time, production can generally be expected
to decline from year to year.
Well operating costs and general and administrative costs usually decrease
with production declines; however, these costs may not decrease
proportionately. Net income available for distribution to the partners is
therefore expected to fluctuate in later years based on these factors.
Based on current conditions, management anticipates performing workovers
during the next two years to enhance production. The Partnership may
undergo a minimal increase later in 1997 and possibly a larger increase in
1998. The Partnership has the potential of remaining steady for the next
few years before possibly experiencing a normal decline.
<PAGE>
Results of Operations
A. General Comparison of the Quarters Ended September 30, 1997 and 1996
The following table provides certain information regarding performance
factors for the quarters ended September 30, 1997 and 1996:
Three Months
Ended Percentage
September 30, Increase
1997 1996 (Decrease)
Average price per barrel of oil $ 18.24 21.44 (15%)
Average price per mcf of gas $ 2.18 2.10 4%
Oil production in barrels 9,600 8,300 16%
Gas production in mcf 22,300 31,000 (28%)
Income from net profits interests $ 142,058 143,851 (1%)
Partnership distributions $ 122,000 115,000 6%
Limited partner distributions $ 109,800 103,500 6%
Per unit distribution to limited partners $ 7.32 6.90 6%
Number of limited partner units 15,000 15,000
Revenues
The Partnership's income from net profits interests decreased to $142,058
from $143,851 for the quarters ended September 30, 1997 and 1996,
respectively, a decrease of 1%. The principal factors affecting the
comparison of the quarters ended September 30, 1997 and 1996 are as
follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended September 30, 1997 as compared to
the quarter ended September 30, 1996 by 15%, or $3.20 per barrel,
resulting in a decrease of approximately $26,600 in income from net
profits interests. Oil sales represented 78% of total oil and gas
sales during the quarter ended September 30, 1997 as compared to 73%
during the quarter ended September 30, 1996.
The average price for an mcf of gas received by the Partnership
increased during the same period by 4%, or $.08 per mcf, resulting in
an increase of approximately $2,500 in income from net profits
interests.
The net total decrease in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$24,100. The market price for oil and gas has been extremely volatile
over the past decade, and management expects a certain amount of
volatility to continue in the foreseeable future.
<PAGE>
2. Oil production increased approximately 1,300 barrels or 16% during the
quarter ended September 30, 1997 as compared to the quarter ended
September 30, 1996, resulting in an increase of approximately $23,700
in income from net profits interests.
Gas production decreased approximately 8,700 mcf or 28% during the same
period, resulting in a decrease of approximately $19,000 in income from
net profits interests.
The net total increase in income from net profits interests due to the
change in production is approximately $4,700. The change in production
is due to the accrual effect in the third quarter of 1996. The
estimates made, for the quarter ended September 30, 1996, understated
actual oil production sold and overstated actual gas production sold
thus skewing the comparative quarters for 1996 and 1997. When
comparing the quarter ended September 30, 1997 to the actual production
for the quarter ended September 30, 1996, oil production increased 200
barrels or 3% and gas production decreased 3,500 mcf or 14%.
3. Lease operating costs and production taxes were 18% lower, or
approximately $18,500 less during the quarter ended September 30, 1997
as compared to the quarter ended September 30, 1996. The decline in
costs is primarily attributable to workover costs incurred in 1996 on
one well.
Costs and Expenses
Total costs and expenses decreased to $58,918 from $69,333 for the quarters
ended September 30, 1997 and 1996, respectively, a decrease of 15%. The
decrease is the result of lower depletion expense, partially offset by an
increase in general and administrative expense.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs increased 2%
or approximately $600 during the quarter ended September 30, 1997 as
compared to the quarter ended September 30, 1996.
2. Depletion expense decreased to $31,000 for the quarter ended September
30, 1997 from $42,000 for the same period in 1996. This represents a
decrease of 26%. Depletion is calculated using the units of revenue
method of amortization based on a percentage of current period gross
revenues to total future gross oil and gas revenues, as estimated by
the Partnership's independent petroleum consultants. Two contributing
factors to the decline in depletion expense between the comparative
periods were the increase in the price of oil used to determine the
Partnership's reserves for January 1, 1997 as compared to 1996 and the
decline in gross oil and gas revenues.
<PAGE>
B. General Comparison of the Nine Month Periods Ended September 30, 1997
and 1996
The following table provides certain information regarding performance
factors for the nine month periods ended September 30, 1997 and 1996:
Nine Months
Ended Percentage
September 30, Increase
1997 1996 (Decrease)
Average price per barrel of oil $ 19.86 20.10 (1%)
Average price per mcf of gas $ 2.39 2.20 9%
Oil production in barrels 28,200 27,400 3%
Gas production in mcf 70,600 78,300 (10%)
Income from net profits interests $ 486,137 440,457 10%
Partnership distributions $ 422,000 372,000 13%
Limited partner distributions $ 379,800 334,800 13%
Per unit distribution to limited partners $ 25.32 22.32 13%
Number of limited partner units 15,000 15,000
Revenues
The Partnership's income from net profits interests increased to $486,137
from $440,457 for the nine months ended September 30, 1997 and 1996,
respectively, an increase of 10%. The principal factors affecting the
comparison of the nine months ended September 30, 1997 and 1996 are as
follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the nine months ended September 30, 1997 as compared
to the nine months ended September 30, 1996 by 1%, or $.24 per barrel,
resulting in a decrease of approximately $6,600 in income from net
profits interests. Oil sales represented 77% of total oil and gas
sales during the nine months ended September 30, 1997 as compared to
76% during the nine months ended September 30, 1996.
The average price for an mcf of gas received by the Partnership
increased during the same period by 9%, or $.19 per mcf, resulting in
an increase of approximately $14,900 in income from net profits
interests.
The net total increase in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$8,300. The market price for oil and gas has been extremely volatile
over the past decade, and management expects a certain amount of
volatility to continue in the foreseeable future.
<PAGE>
2. Oil production increased approximately 800 barrels or 3% during the
nine months ended September 30, 1997 as compared to the nine months
ended September 30, 1996, resulting in an increase of approximately
$15,900 in income from net profits interests.
Gas production decreased approximately 7,700 mcf or 10% during the same
period, resulting in a decrease of approximately $18,400 in income from
net profits interests.
The net total decrease in income from net profits interests due to the
change in production is approximately $2,500.
3. Lease operating costs and production taxes were 14% lower, or
approximately $38,600 less during the nine months ended September 30,
1997 as compared to the nine months ended September 30, 1996. The
decline in costs is primarily attributable to workover costs incurred
in 1996 on one well.
Costs and Expenses
Total costs and expenses decreased to $193,286 from $214,367 for the nine
months ended September 30, 1997 and 1996, respectively, a decrease of 10%.
The decrease is the result of lower depletion expense, partially offset by
an increase in general and administrative expense.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs increased 1%
or approximately $900 during the nine months ended September 30, 1997
as compared to the nine months ended September 30, 1996.
2. Depletion expense decreased to $101,000 for the nine months ended
September 30, 1997 from $123,000 for the same period in 1996. This
represents a decrease of 18%. Depletion is calculated using the units
of revenue method of amortization based on a percentage of current
period gross revenues to total future gross oil and gas revenues, as
estimated by the Partnership's independent petroleum consultants. A
contributing factor to the decline in depletion expense between the
comparative periods was the increase in the price of oil used to
determine the Partnership's reserves for January 1, 1997 as compared to
1996.
<PAGE>
Liquidity and Capital Resources
The primary source of cash is from operations, the receipt of income from
interests in oil and gas properties. The Partnership knows of no material
change, nor does it anticipate any such change.
Cash flows provided by operating activities were approximately $437,000 in
the nine months ended September 30, 1997 as compared to approximately
$366,600 in the nine months ended September 30, 1996. The primary source
of the 1997 cash flow from operating activities was profitable operations.
Cash flows used in financing activities were approximately $421,500 in the
nine months ended September 30, 1997 as compared to approximately $371,600
in the nine months ended September 30, 1996. The only use in financing
activities was the distributions to partners.
Total distributions during the nine months ended September 30, 1997 were
$422,000 of which $379,800 was distributed to the limited partners and
$42,200 to the general partners. The per unit distribution to limited
partners during the nine months ended September 30, 1997 was $25.32. Total
distributions during the nine months ended September 30, 1996 were $372,000
of which $334,800 was distributed to the limited partners and $37,200 to
the general partners. The per unit distribution to limited partners during
the nine months ended September 30, 1996 was $22.32.
The source for the 1997 distributions of $422,000 was oil and gas
operations of approximately $437,000, resulting in excess cash for
contingencies and subsequent distributions. The source for the 1996
distributions of $372,000 was oil and gas operations of approximately
$366,600, with the balance from available cash on hand at the beginning of
the period.
Since inception of the Partnership, cumulative monthly cash distributions
of $8,676,644 have been made to the partners. As of September 30, 1997,
$7,817,016 or $521.13 per limited partner unit has been distributed to the
limited partners, representing a 104% return of the capital contributed.
As of September 30, 1997, the Partnership had approximately $109,300 in
working capital. The Managing General Partner knows of no unusual
contractual commitments and believes the revenues generated from operations
are adequate to meet the needs of the Partnership.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits:
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Southwest Royalties Institutional Income
Fund VII-B, L.P.
a Delaware limited partnership
By: Southwest Royalties, Inc.
Managing General Partner
By: /s/ Bill E. Coggin
------------------------------
Bill E. Coggin, Vice President
and Chief Financial Officer
Date: November 15, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at September 30, 1997 (Unaudited) and the Statement of
Operations for the Nine Months Ended September 30, 1997 (Unaudited) and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 25,868
<SECURITIES> 0
<RECEIVABLES> 84,537
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 110,405
<PP&E> 4,353,685
<DEPRECIATION> 2,939,370
<TOTAL-ASSETS> 1,524,720
<CURRENT-LIABILITIES> 1,085
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,523,635
<TOTAL-LIABILITY-AND-EQUITY> 1,524,720
<SALES> 486,137
<TOTAL-REVENUES> 487,247
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 193,286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 293,961
<INCOME-TAX> 0
<INCOME-CONTINUING> 293,961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 293,961
<EPS-PRIMARY> 17.64
<EPS-DILUTED> 17.64
</TABLE>
